Nice and Easy On The Way Up...
Yes, the rally is happening. The market took the bears' best shot, and I think for now the downtrend is exhausted. I wouldn't be surprised if the SPX index reaches the 1203-1205 level by the middle of next week... It seems like the bulls have a little breathing room ahead of the earnings season.
Mighty WMT continues to do well. Volatility in the name has gone down slightly since we recommended selling the Dec05 At-The-Money 45 puts @ 1.40 (and also the stock is going up), hence today's mark for those puts is 1.25 -- already 15c in the black! Anyway, I think short-term resistance in the stock is around $45.5-$45.75 -- if this level is broken, the stock could quite easily fill the gap to $48-48.25. Hence, I remain bullish on WMT, both in the short-term and in the longer-term, especially if the U.S. mid- to high-end consumer continues to feel the squeeze on his wallet and "trades down" to shopping at WMT and the "dollar stores"... Incidentally, take a look at FDO -- Family Dollar, another dollar discount store that I like. I think this name is extremely cheap as well, and has some upward momentum to the $25 level. If the U.S. economy enters into a recession next year (50/50 likelihood at this point), these bargain-basement retail names could find themselves with a few more customers, and their stock prices could really take off!
The Fed is definitely raising rates during their next meeting in November -- that much was telegraphed already. I don't think they will stop until we see 4.50% or even 4.75% early next year. ARM (adjustable rate mortgage) buyers, especially the aggressive interest-only payers, BEWARE... Banks could be looking to significantly decrease the number of such ARMs -- and it could indeed cost some people er... an arm and a leg ;-)
Have a great weekend everybody! Happy Investing!
Mighty WMT continues to do well. Volatility in the name has gone down slightly since we recommended selling the Dec05 At-The-Money 45 puts @ 1.40 (and also the stock is going up), hence today's mark for those puts is 1.25 -- already 15c in the black! Anyway, I think short-term resistance in the stock is around $45.5-$45.75 -- if this level is broken, the stock could quite easily fill the gap to $48-48.25. Hence, I remain bullish on WMT, both in the short-term and in the longer-term, especially if the U.S. mid- to high-end consumer continues to feel the squeeze on his wallet and "trades down" to shopping at WMT and the "dollar stores"... Incidentally, take a look at FDO -- Family Dollar, another dollar discount store that I like. I think this name is extremely cheap as well, and has some upward momentum to the $25 level. If the U.S. economy enters into a recession next year (50/50 likelihood at this point), these bargain-basement retail names could find themselves with a few more customers, and their stock prices could really take off!
The Fed is definitely raising rates during their next meeting in November -- that much was telegraphed already. I don't think they will stop until we see 4.50% or even 4.75% early next year. ARM (adjustable rate mortgage) buyers, especially the aggressive interest-only payers, BEWARE... Banks could be looking to significantly decrease the number of such ARMs -- and it could indeed cost some people er... an arm and a leg ;-)
Have a great weekend everybody! Happy Investing!
posted by Ivan at 10/14/2005 03:11:00 PM
1 Comments:
It is true that, in a recessionary environment, buyers' precious dollars switch away from the top shops and back to the discounters.
The problem is that the switch is not 1:1. Hence, the absolute cash jumping into WMT's tills will be less than what has been spent elsewhere + some of the present WMT purchases won't be happing if the going gets even a bit tougher. Remember that WMT accounts for some insane % of the US GDP so it is hardly just a discounter.
If the economy slows down and the property market even as much as flattens, retail will dive especially if it's such a large player within it. Cf UK or Australian current conditions for furher reference...
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